Is Dispute Adjudication Under Fidic Contracts For Major Works Indeed A Precondition To Arbitration

IS DISPUTE ADJUDICATION UNDER FIDIC
CONTRACTS FOR MAJOR WORKS INDEED

A PRECONDITION TO ARBITRATION?
D I M I TA R H R I S T O F O R O V K O N D E V *
Despite the widespread opinion that dispute adjudication is a mandatory

pre-arbitral stage under the FIDIC Contracts, anecdotal evidence shows that
an alternative interpretation of these contracts has been adopted in some
Central and Eastern European countries which allows parties to by-pass
this stage of the dispute resolution process. This article aims at informing
those engaged in construction in these countries about this alternative
interpretation and the risks associated with it.
1. INTRODUCTION
The FIDIC Contracts for Major Works (FIDIC Contracts)1 introduce a

multi-tier system for resolution of construction disputes which includes:
determination of a claim by the engineer,2 a referral of the dispute to a
Dispute Adjudication Board (DAB), an attempt to reach an amicable
settlement, and, finally, a referral to arbitration. The prevailing view
among scholars and practitioners is that the parties should exhaust all of
these pre-arbitral phases before submitting their disputes to arbitration,
unless they agree otherwise. In other words, a dispute cannot be referred
directly to arbitration without having first been submitted to the DAB.
The present article aims at drawing the readers attention to an alternative
interpretation of the FIDIC Contracts which allows parties to arbitrate their
disputes without referring them to a DAB. Anecdotal evidence suggests
that a similar interpretation has been adopted by contracting parties and
arbitral tribunals in some Central and Eastern European states.
* PhD Fellow at Aarhus University, Denmark and Senior Associate at Djingov, Gouginski, Kyutchukov
& Velichkov, Attorneys and Counsellors at law, Sofia, Bulgaria (www.dgkv.com). The author can be
contacted at dkondev@jura.ac.dk.
1
FIDIC is the French acronym of the International Federation of Consulting Engineers (www.fidic.
org). The FIDIC Contracts for Major Works referred to in this article include the Conditions of Contract
for Construction (or also known as Red Book), the Conditions of Contract for Plant and Design-Build (or
Yellow Book) and the Conditions of Contract for EPC/Turnkey Projects (or Silver Book). All references
in this article, unless explicitly indicated otherwise, are to the 1999 editions of these contracts.
2
For the purpose of convenience, I have used the names of the parties under the FIDIC Contracts in
the same way these parties are designated thereunder.
Informa plc 2014. This article first appeared in the International Construction Law Review Part 3 July 2014 [2014] ICLR 256
Pt 3] Dispute Adjudication under FIDIC Contracts 257
2. DISPUTE RESOLUTION UNDER FIDIC CONTRACTS
The FIDIC Contracts contain a detailed and self-contained system for

resolution of construction disputes. The main provisions concerning
claims and disputes are contained in clause 20. In order to facilitate the
readers apprehension of the subject-matter of this article, the four major
steps in the dispute resolution process under the FIDIC Contracts are
briefly outlined below.
2.1. From a claim to a dispute

First of all, there should be a dispute. The mere existence of a claim filed
by either party is not sufficient for such a claim to be qualified as a dispute.
A dispute occurs when a party files a claim which has been rejected in whole
or in part, and the same party wishes to pursue the claim further. Thus, a
contractors claim filed in compliance with the contractual requirements
of sub-clause 20.1, which has been rejected by the engineer, will qualify as
a dispute, provided that the contractor expresses its dissatisfaction with the
engineers rejection.
2.2. Review of the Dispute by a DAB

The second step in the dispute settlement process involves the referral of the
dispute to a DAB. The DAB was introduced for the first time in one of the
1995 FIDIC books,3 and later on, it was adopted in all the 1999 editions of
the FIDIC Contracts. Nowadays, DABs are increasingly popular throughout
the world on the larger projects. It is not the purpose of this article to deal
with the nature of DABs which has been subject to extensive debate4. It will
be sufficient for the purpose of this article to say that dispute resolution by
a DAB is a contractual mechanism for settlement of disputes under which a
private independent panel, comprising of one or three experts, considers a
dispute and renders a decision on it which is binding on the parties under
certain conditions.
The introduction of the DAB under the FIDIC Contracts had a threefold
function. On one side, the DAB replaced the controversial figure of
the engineer as decision-maker under the older editions of the FIDIC
Contracts. The engineer was often criticised as being dependent on the
3
This was the FIDIC Conditions of Contract for Design-Build and Turnkey Projects of 1995 (or also
called the Orange Book).
4
For more details about the history and nature of the DAB procedure, please see Jane Jenkins,
International Construction Arbitration Law, 2nd Edition. (Alphen aan den Rijn/Kluwer Law International,
2013), pp. 5664. See also Volker Mahnken, Why International Dispute Settlement Institutions should
offer ad hoc Dispute Board Rules [2006] ICLR 433, and Gtz-Sebastian Hk, Dispute Adjudication in
Civil Law Countries Phantom or Effective Dispute Resolution Method? [2011] ICLR 412.
258 The International Construction Law Review [2014
employer which precluded him from making a fair and unbiased decision
on disputes5. Nowadays, the engineer is still involved in the dispute
settlement process at the stage when he has to make a determination on the
claims submitted by the parties6. However, once the claim crystallizes into
a dispute, i.e. the claim has been rejected by the engineer and the latters
rejection has also been rejected by the claiming party, then the role of the
DAB comes to the fore instead. The second reason for the introduction of
the DAB was to promote a new dispute avoidance mechanism. The dispute
avoidance function can be seen from the obligation of the DAB under the
Red Book to give opinions and recommendations if both parties jointly
require the DAB to do so7. In addition, the introduction of the DAB aimed
at decreasing the number of disputes which proceeded to arbitration by
creating a cheaper and faster way for resolution of construction disputes
while construction is still under way.
There are two types of DABs under the FIDIC Contracts8. Under the
Red Book, the DAB is a standing board which is constituted at the initial
stage of the construction project9. In contrast thereto, the DAB under the
Silver Book and the Yellow Book is an ad hoc board which is appointed
once the dispute has arisen10. As the reader will see in section 4.1 below,
the answer to the question posed in the title of this article depends on the
type of DAB which has been constituted.
Once seized with the dispute, the DAB should render its decision within
a term of 84 days and the party dissatisfied with the decision must serve
a notice of dissatisfaction if it is willing to pursue the dispute further11.
The decision is binding on the parties, unless, and until, it is revised in an
amicable settlement or an arbitral award12. If no notice of dissatisfaction
has been served against the decision, the dispute is deemed settled and the
decision becomes final. The notice of dissatisfaction triggers the next step
in the procedure.
5
This was due to the fact that the engineer was paid by the employer and, therefore, oftentimes
played to the tune of the employer. The engineer acted more as an employers agent and not as an
independent professional. For more details about the figure of the engineer under FIDIC Contracts
please see Ola Nisja, The Engineer in International Construction: Agent? Mediator? Adjudicator?
[2004] ICLR 230, and Helmut Kntges, International Dispute Adjudication Contractors Experiences
[2006] ICLR 306.
6
Sub-clause 3.5 FIDIC Contracts.
7
However, this function is envisaged under the Red Book only (sub-clause 20.2, paragraph 7). There
is no such a provision in the Yellow Book and the Silver Book.
8
As regards the pros and cons of the different types of boards, please see Christian Stubbe and
Michael Wietzorek, Making Dispute Boards Better with the One Plus One Model [2013] ICLR 4.
9
Sub-clause 20.2 Red Book.
10
Sub-clause 20.2 Yellow Book and Silver Book.
11
Sub-clause 20.4 FIDIC Contracts.
12
Sub-clause 20.4, paragraph 4 FIDIC Contracts.
2.3. Amicable settlement

Pursuant to sub-clause 20.5 of the FIDIC Contracts, where a notice of
dissatisfaction has been served, both parties should attempt to settle the
dispute amicably before the commencement of arbitration proceedings,
which may be commenced only after the expiry of 56 days, unless the parties
agree otherwise.
2.4. Arbitration
The final prong of the dispute settlement process under FIDIC Contracts is
arbitration under sub-clause 20.6. The arbitration clause proposed by FIDIC
is self-sufficient13. It contains reference to the ICC Rules of Arbitration and
envisages the composition of a three-member arbitral tribunal. The place
of arbitration can be chosen by the parties or determined by the tribunal in
case the contract is silent on this matter.
3. DISPUTE ADJUDICATION AS A PRECONDITION

TO ARBITRATION
The prevailing opinion among scholars and practitioners nowadays is that

the three steps mentioned in sections 2.12.3 above are preconditions to the
commencement of arbitration proceedings14. Of course, parties are always
free to deviate from the default dispute resolution mechanism. For example,
they may modify clause 20 and agree that arbitration or a court will be the
sole and only dispute resolution method which can be invoked directly by
the parties. The same effect would be achieved if one of the parties files a
premature request of arbitration (because of non-completion of the steps in
sections 2.12.3) and the other party participates in the proceedings without
objecting to tribunals jurisdiction to review the dispute15. Apparently, in
these two cases dispute adjudication is not a precondition to arbitration
because the parties are treated to have agreed otherwise. Therefore, this
section deals only with cases where the parties have agreed to use one of the
FIDIC Contracts without modifying the default dispute resolution clauses.
13
Christopher R. Seppl, The Arbitration Clause in FIDIC Contracts for Major Works [2005]
ICLR 4.
14
See Seppl, fn. 13 above, pp. 67. See also Dyal Jimnez Figueres, Multi-Tiered Dispute
Resolution Clauses in ICC Arbitration: Introduction and Commentary, in 14 ICC International Court of
Arbitration Bulletin, No 1 (2003), p. 71, Hk, fn. 4 above, pp. 422423, 426.
15
Please see Article 4 of the UNCITRAL Model Law in International Commercial Arbitration, available
at http://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf (Last accessed
22 April 2014), pursuant to which, the party who knows that any requirement under the arbitration agree-
ment was not complied with and yet proceeds with the application without stating its objection, shall be
deemed to have waived his right to object.
In these cases, parties should generally go through all the stages in sections
2.12.3 above16. This widespread opinion rests on three main arguments.
First of all, it is based on the interpretation of the FIDIC Contracts provisions.
Secondly, there are some arbitral awards which supposedly support the
opinion that dispute adjudication is a mandatory pre-arbitral step under
the FIDIC Contracts. And thirdly, the rationale for the introduction of the
DAB under the FIDIC Contracts further strengthens this argument. I will
now deal with each of these arguments below.
3.1. Contractual interpretation

Several parts of clause 20 of the FIDIC Conditions have been cited in
support of the opinion that the DAB is a mandatory pre-arbitral phase. First
of all, sub-clause 20.2 stipulates that Disputes shall be adjudicated by a
DAB in compliance with sub-clause 20.4 [Obtaining Dispute Adjudication
Boards Decision]. Allegedly, this means that all claims which turn into
disputes should be subject to review by a DAB. Furthermore, paragraph 6
of sub-clause 20.4, which deals with the notice of dissatisfaction against a
DAB decision, contains probably the most cogent argument. Pursuant to
this provision:
Except as stated in sub-clause 20.7 [Failure to Comply with Dispute Adjudication
Boards Decision] and sub-clause 20.8 [Expiry of Dispute Adjudication Boards
Appointment], neither party shall be entitled to commence arbitration of a dispute
unless a notice of dissatisfaction has been given in accordance with this sub-clause.
This provision, read in conjunction with sub-clause 20.2, suggests that

a dispute may be referred to arbitration only after the dispute has been
referred to a DAB and a notice of dissatisfaction has been served against
DABs decision or the lack of such a decision17. These provisions set forth
the general rule which applies in the dispute settlement process under
the FIDIC Contracts. Any deviations from this rule are exceptional, and,
as is evident from the wording of sub-clause 20.4, should satisfy either
the conditions of sub-clause 20.7 or those of sub-clause 20.8. Sub-clause
20.7 concerns only cases where a DABs decision has become final and
binding, and one of the parties fails to comply with it. In such a case, the
other party may refer this default directly to arbitration without having
to go through dispute adjudication and amicable settlement a second
time. This approach is understandable and needs no further explanation.
16
Seppl, fn. 13 above, pp. 67. As Christopher R Seppl has pointed out: The scope of the
arbitration clause is a narrow one as no dispute under the contracts may ordinarily go to arbitration
until it has run the gauntlet, so to speak, of clause 20. However, the author admits that the wording
under the 1999 Silver Book and 1999 Yellow Book is not satisfactory and might be interpreted in a way
which would allow the parties to by-pass the DAB phase of the dispute resolution process.
17
Pursuant to paragraph 5 of sub-clause 20.4, a notice of dissatisfaction should be given also in cases
where the DAB fails to give its decision within the prescribed period of time.
Enforcement of DABs decisions has been extensively discussed in the legal

literature and this question is outside the scope of this article18. The second
exception under sub-clause 20.8 allegedly deals with cases where the
DABs appointment has expired. This clause is analysed in more detail in
section 4 below.
It has been stated that sub-clause 20.5 also strengthens the view that a
dispute should be referred to a DAB before proceeding to arbitration.
The provision specifies that prior to arbitration the parties should try
to reach an amicable settlement of their dispute in relation to which a
notice of dissatisfaction has been served. Thus, the sub-clause outlines
in a clear way the sequence of steps which should be undertaken before
the commencement of arbitration, namely adjudication of the dispute,
serving of a notice of dissatisfaction, and, finally, an attempt at amicable
solution.
A further argument supporting the mandatory character of the DAB
stage of the dispute settlement process is contained in sub-clause 20.6
which provides that: Unless settled amicably, any dispute in respect of
which the DABs decision (if any) has not become final and binding shall
be finally settled by international arbitration. As Christopher Seppl has
noted, it follows from this sentence that only a dispute which has been
referred to the DAB for a decision and which has not become the subject
of DABs final and binding decision may be submitted to arbitration19.
Accordingly, a dispute which has not been referred to the DAB is
premature and cannot proceed to arbitration. The arbitral tribunal will
lack jurisdiction to review such a dispute. If it does so, it risks its award
being set aside in the country where arbitration took place and/or its
recognition and enforcement being denied in third countries20.
3.2. Arbitral awards

The second main argument in favour of the mandatory character of the
DAB is based on the content of some arbitral awards rendered under
the auspices of the ICC International Court of Arbitration21. It should be
mentioned, however, that these awards dealt with disputes under earlier
editions of the FIDIC Contracts22 in which the DAB was unknown and the
18
For a detailed analysis about the topic see, for example, Christopher R Seppl, Enforcement by
an Arbitral Award of a Binding but not Final Engineers or DABs Decision under the FIDIC Conditions
[2009] ICLR 414. See also Gtz-Sebastian Hk, Dispute Adjudication Boards The International or
Third Dimension [2012] ICLR 420.
19
Seppl, fn. 13 above, pp. 67.
20
Seppl, fn. 13 above, pp. 67.
21
Excerpts from these awards have been published in the ICC International Court of Arbitration Bulletin
and have been commented on by Christopher R Seppl in a series of commentaries.
22
The awards deal with disputes that have arisen under the second (1969), third (1977) and fourth
(1987) Editions of the FIDIC Contracts.
engineer fulfilled the role of a dispute adjudicator instead. Nevertheless,

it has been stated that these awards may remain relevant also in respect to
the resolution of disputes by a DAB because of the similarity of the dispute
resolution clauses under the older and the current 1999 FIDIC Contracts.
Most of the known ICC awards are consistent in their approach towards
the pre-arbitral procedure and conclude that a decision of the engineer
(who at that time was exercising the same role as that of the DAB under
the current FIDIC editions) was a precondition to the commencement of
arbitral proceedings. In ICC Case 6535, the tribunal decided that it did
not have jurisdiction to review a contractors claim which had previously
been referred to the engineer but was not rejected by the latter23. In
addition, in ICC Case 6276 and Case 6277 of 1990, the arbitral tribunal
concluded that the contractors claim was premature because it had not
satisfied the prerequisites for arbitration set forth under the contract, as
it had not been submitted for decision by the engineer24. The tribunal
reached this conclusion despite the fact that the engineer was actually never
appointed by the employer25. The partial award in ICC Case 12048 of 2003
contains probably the most explicit wording concerning the compulsory
character of the pre-arbitral phase of the dispute resolution process. In this
case, the tribunal refused to consider counterclaims filed by the employer
which had not previously been submitted to the engineer26.
However, there is one ICC award rendered by a sole arbitrator in
which the opposite conclusion was reached. In ICC Case 8677 of 1997,
the arbitrator decided to grant contractors claim to recover from the
employer the retention money under the contract despite the fact that the
contractor failed to refer such a claim to the engineer27. What contributed
to this extraordinary outcome was probably the fact that the employer did
not object that the requested amount was a debt due28.
23
Final Award in Case 6535 (Extract), in 9 ICC International Court of Arbitration Bulletin, No 2 (1992),
p. 60. The tribunal stated that: if the matters submitted to the Engineer are claims which have not
previously been rejected, they cannot be regarded as submitted under clause 67 whatever language is
used in the submission.
24
Partial Award in Cases 6276 and 6277 (Extract), in 9 ICC International Court of Arbitration Bulletin,
No 2 (1998), p. 58.
25
The tribunal stated that: the claimant was under a duty to put the defendant (Employer) on
notice to indicate to it the name of the Engineer to whom the dispute could be submitted. It was only
if it had met with a refusal or in the event of the failure to reply on the part of the defendant that the
claimant could have been dispensed from complying with this pre-arbitral phase.
26
Cited by Christopher R Seppl, International Construction Contract Disputes: Third
Commentary on ICC Awards, in 23 ICC International Court of Arbitration Bulletin, No 2 (2012), p. 27. The
tribunal concluded: before such claims may be referred to arbitration they must in the first place,
be referred in writing to the Engineer Pursuant to the express terms of clause 67, therefore, this
Arbitral Tribunal has no jurisdiction to consider any claims that have not been so referred.
27
Final Award in Case 8677 (Extract), in 19 ICC International Court of Arbitration Bulletin, No 2
(2008), p. 71.
28
See Christopher R Seppl, International Construction Contract Disputes: Second Commentary
on ICC Awards, in 19 ICC International Court of Arbitration Bulletin, No 2 (2008), p. 63.
3.3. Purpose of DAB

As already indicated in section 2.2, one of the purposes of the new DAB
under the FIDIC Contracts was to decrease the number of disputes
proceeding to arbitration by offering both an early dispute avoidance
mechanism and a fast-track and cheaper procedure for resolution of
disputes which is neutral and acceptable to both parties. That is why the
engineer, in his role of decider of disputes, was replaced by the DAB.
Therefore, the more consistent approach of the FIDIC drafters when
introducing the DAB seems to be the adoption of a mandatory pre-
arbitral stage in dispute resolution. And indeed, it seems illogical that the
drafters of the FIDIC Contracts would aim at creating a multi-level dispute
settlement procedure where the parties could easily leapfrog a procedural
step. Moreover, at the time when the engineer was still performing his
role of dispute adjudicator under the older FIDIC editions there was no
possibility for the parties to circumvent the pre-arbitral referral of the
disputes to the engineer. Therefore, it is hard to believe that the drafters of
the FIDIC Contracts wanted to depart from the idea of having a mandatory
pre-arbitral stage of dispute resolution.
4. THE EXCEPTION UNDER SUB-CLAUSE 20.8
As already stated in section 3.1 above, the general rule under FIDIC
Contracts is that a dispute should go through the review of a DAB and an
attempt to settle the dispute amicably before being referred to arbitration.
Sub-clause 20.8 is one of the exceptions to this rule, since it allows either
party to refer disputes directly to arbitration without having to comply with
the two pre-arbitral steps described above, provided that the conditions for
application of sub-clause 20.8 are fulfilled. These conditions will now be
examined in some more detail.
4.1. Expiry of DABs Appointment

Pursuant to sub-clause 20.8:
If a dispute arises between the parties in connection with, or arising out of, the
Contract or the execution of the Works and there is no DAB in place, whether by
reason of the expiry of the DABs appointment or otherwise:
(a) Sub-clause 20.4. [Obtaining Dispute Adjudication Boards Decision] and sub-
clause 20.5 [Amicable Settlement] shall not apply, and
(b) the dispute may be referred directly to arbitration under sub-clause 20.6
[Arbitration].
On its face, it seems that sub-clause 20.8, which bears the sub-title
Expiry of Dispute Adjudication Boards Appointment, will apply only in cases
where a DAB has been appointed and its mandate has expired. In cases
where the DAB is a standing board, as under the Red Book, this approach
is understandable. The standing DAB is appointed at the beginning of
the project and its mandate expires after its completion and the issuance
of the performance certificate under sub-clause 11.9 which certifies
the completion of contractors obligations under the contract29. It
cannot be expected from a DAB to stand for an indefinite period of time
after the project completion. The appointment of the engineer would
probably also have expired by that time. Therefore, in these cases, FIDIC
introduces a less stringent dispute settlement procedure which allows
either party to refer disputes directly to arbitration.
However, under the FIDIC Yellow Book and Silver Book, the DABs are
ad hoc boards. Pursuant to sub-clause 20.2 thereunder, the respective
DAB is appointed when a dispute has arisen and its appointment
expires once the DAB has given its decision on the dispute. If any other
disputes are submitted to the DAB by the date it has given its decision
on the first dispute, then its mandate shall expire on the date when
it has also given its decision on these other disputes30. Thus, there is
a gap in respect of all disputes submitted for review after the date of
DABs decision. In practice, these disputes may arise well before the
completion of the project. Read in conjunction with sub-clause 20.8,
the wording of sub-clause 20.2 creates the impression that the parties
do not have to submit these disputes to a DAB31. Moreover, they do not
have the obligation to try to reach an amicable settlement. Thus, it turns
out that disputes under the Yellow Book and Silver Book are treated
differently regardless of the phase of completion of the project. The
criterion for the differentiation seems to be temporal, i.e. whether the
dispute in question has been referred before the date when the DAB has
taken its decision on previous disputes or afterwards. Such a difference
in the treatment of disputes could hardly be justified but, unfortunately,
it is rooted in the contractual provisions.
29
More precisely, under the last paragraph of sub-clause 20.2 the appointment of the DAB shall
expire when the discharge under sub-clause 14.12 becomes effective, unless otherwise agreed between
the parties. The discharge is provided by the contractor after the issuance of the performance certificate
for the works and in the discharge the contractor acknowledges that the amounts indicated in his
application for a final payment certificate are all the amounts due to the contractor under the contract.
The entry into force of the discharge may be made conditional upon the return of the performance
certificate and the payment of any outstanding amounts to the contractor.
30
Last paragraph of sub-clause 20.2 Silver Book and Yellow Book.
31
The problematic wording of sub-clause 20.8 under the FIDIC Yellow and Silver Books has been
noticed by Christopher R Seppl. See Seppl, fn. 13 above, p. 13 (fn. 21). The author commented
that: the language is unsatisfactory as it could be interpreted as entitling a party to go directly to
arbitration and bypass the DAB, which was certainly not the intention.
4.2. Other reasons for lack of DAB

Leaving aside the question of the expiry of the DAB, an examination of
the use of the word otherwise in sub-clause 20.8 might be illustrative.
As already mentioned, this provision will apply if there is no DAB in
place whether by reason of the expiry of the DABs appointment or otherwise.
The expiry of the DABs appointment is only one of the reasons for the
lack of the DABs existence. Therefore, it may be argued that the narrow
application of the provision only to cases where DABs appointment has
expired (as hinted also by the sub-title of the sub-clause) has been refuted
by the existence of the word otherwise therein. Unfortunately, there is
nothing in the FIDIC Contracts which clarifies the rationale for the use
of this word. The clause, literally read, creates the impression that it will
find application in all cases where there is no DAB in place for whatever
reason. This means that sub-clause 20.8 may be put into practice in cases
where a DAB was never appointed even though the parties signed a FIDIC
Contract containing dispute resolution clauses requiring a DAB. This will
enable either party (usually the contractor) to refer its claim directly to
arbitration by-passing the pre-arbitral phases of dispute resolution (i.e.
the DAB and amicable settlement). Moreover, one of the parties may even
decide to thwart the appointment of a DAB with the ulterior motive of
receiving a faster redress by way of circumventing the DAB stage in the
dispute resolution process. It has been suggested that such behaviour
may take the form of either partys refusal to sign the tripartite Dispute
Adjudication Agreement envisaged under the fifth paragraph of sub-
clause 20.2. This agreement regulates the procedural rules to be followed
by the DAB, and, therefore, the unwillingness of one of the parties to
sign this agreement may be considered as an obstacle for the DABs
commencement of work32. Whether such behaviour will be recognized as
valid and enforceable is another question which will very much depend on
the law governing the contract and the subjective opinion of the arbitral
tribunal reviewing the case.
The absence of a working DAB may also be due to circumstances which
arise following the appointment of the DAB. This will be the case, for
example, when the sole member or one of the members of the DAB is not
able to continue its work due to resignation, termination of appointment,
death or disability. The FIDIC Contracts make an attempt at overcoming
these difficulties by ensuring the appointment of a replacement person.
At first, it is up to the parties to agree on a suitably qualified person who
32
Axel-Volkmar Jaeger and Gtz-Sebastian Hk, FIDIC: A Guide for Practitioners, (New York, 2009),
pp. 407409. Pursuant to sub-clause 20.2, such a tripartite agreement shall incorporate by reference the
General Conditions of Dispute Adjudication Agreement which are contained in the Appendix to the
FIDIC Contract. Therefore, the lack of such a tripartite agreement will actually mean that these General
Conditions will not enter into force.
can replace the member who is unable to act33. If the parties fail to agree
on a replacement, then the fall-back provision of sub-clause 20.3 comes
into play. It envisages that the appointing authority or the official named
in the Appendix of Tender (under the Red Book and the Yellow Book)
or the Particular Conditions (under the Silver Book) will appoint the
replacement in parties stead34. However, this mechanism will not always
lead to the desired result. It will not be possible to appoint a replacement
person if the parties have not specified an appointing authority in the
FIDIC Contract or if the specified authority has failed to act35. These
circumstances may be considered as stumbling-blocks for the continuation
of the work of the initially appointed DAB which may be overcome only
by agreement between the parties as regards the appointment of the
replacement member. If the parties fail to co-operate, the only way forward
seems to be the application of the exception under sub-clause 20.8 which
will open the way to arbitration.
It follows that the vague wording of sub-clause 20.8 gives some leeway
for the parties to assert that they are not obliged to use the services of the
DAB. This makes it possible for the arbitral tribunal reviewing the dispute
to reach the conclusion that the DAB and the attempts for amicable
settlement are non-mandatory phases of the dispute resolution under
the FIDIC Contracts. Anecdotal information suggests that in Central and
Eastern Europe claimants in arbitration proceedings have often relied on
this interpretation of sub-clause 20.8 in order to have their disputes reviewed
directly by arbitration. The reasons for such an approach could be varied.
One of them is the fear of the unknown. In Central and Eastern Europe,
dispute adjudication is still not well comprehended, despite the widespread
use of the FIDIC Conditions in these countries. The review of construction
disputes by a DAB is often perceived as a procedure which increases the
costs and prolongs the time for dispute resolution. Claimants reluctance
to use DABs can be further explained by the uncertainties related to the
enforcement of a DABs decision which has not been complied with by the
defaulting party36. Further anecdotal evidence suggests that, when faced
33
Pursuant to sub-clause 20.2, the parties may at any time appoint a replacement person. The
appointment of such a person will come into effect if a DAB member declines to act or is unable to
act as a result of death, disability, resignation or termination of appointment. However, if any of these
circumstances occurs and no replacement is available, the replacement should be appointed in the
same manner as the replaced person was required to have been nominated or agreed upon.
34
FIDIC has suggested that the functions of the appointing authority may be exercised by the
president of FIDIC or a person appointed by the president but in practice the parties often modify the
default provision and specify another person or legal entity to act as an appointing authority.
35
I have seen several FIDIC Contracts concerning projects in Central and Eastern Europe where the
engineer or another person related to the employer was designated to act as an appointing authority
for the purposes of sub-clause 20.3. In these cases, the employer might try to persuade the appointing
authority to refrain from appointing a replacement member of the DAB if the employer wants to avoid
the continuation of the dispute adjudication and refer its dispute with the contractor to arbitration.
36
See Seppl, fn. 18 above, pp. 414427. See also Hk, fn. 4 above, pp. 435437.
with premature requests for arbitration of disputes which have not gone
to a DAB, arbitral tribunals in Central and Eastern Europe are inclined
to adopt the interpretation of sub-clause 20.8 posed above. Frequently, in
such cases the respondents will raise a jurisdictional objection claiming
that the pre-arbitral phases of the dispute settlement process have not been
exhausted and that the tribunal does not have jurisdiction to review the
dispute. However, when faced with such objections the arbitral tribunals
often confirm their jurisdiction by leaning on the word otherwise in
sub-clause 20.8. How local courts in these countries would decide on the
jurisdictional objection if seized with it remains to be seen. In the cases
under both section 4.1 and section 4.2 above, it can be easily seen how the
general rule regarding the preconditions to arbitration may be defeated
by the exception provided in sub-clause 20.8. The exception creates broad
opportunities for the parties to by-pass the pre-arbitral stages of dispute
resolution under the FIDIC Contracts. Most likely, the arbitral awards
mentioned in section 3.2 above would not limit the established practice
in Central and Eastern Europe to evade DABs. It is true that an arbitral
tribunal acting under the auspices of the ICC International Court of
Arbitration might be influenced by the content of these awards. However,
they do not have the value of precedents. Their influence is even less
certain when it comes to disputes reviewed by ad hoc arbitral tribunals
or tribunals acting under the auspices of other arbitration institutions.
Moreover, as mentioned earlier, these awards dealt with disputes based on
earlier editions of the FIDIC Contracts in which the engineer fulfilled the
role of the DAB. However, under these editions there were no exceptions
similar to sub-clause 20.8 which allowed parties to by-pass the review of the
dispute by the engineer. Therefore, the considerations underlying these
awards could not be directly transposed to the question discussed in the
present article.
5. GOVERNING LAW
It is beyond any doubt that the dispute resolution mechanism under FIDIC
Conditions can be significantly affected by the law governing the respective
contract. It is outside the scope of this article to provide an overview of
statutory provisions in different countries that may influence the settlement
of construction disputes based on FIDIC Contracts. However, two cases can
be mentioned here. They are of direct relevance to the question posed in
the title of this article and have an impact on the sequence and character of
the contractually agreed dispute settlement procedures. First of all, dispute
adjudication of construction claims under certain types of contract and
project in Great Britain is mandatory under the provisions of the Housing
Grants, Construction and Regeneration Act 1996. Obviously, in these cases
parties have to allow their disputes to be adjudicated whatever the contract
may have said. There are also other countries which have introduced
statutory adjudication in their legislation37. On the other hand, there are
some states where the jurisdiction of arbitral institutions over disputes is
conferred by law. As a result, courts have held that the respective arbitration
institution may assume jurisdiction over disputes even though the parties
have agreed to follow certain pre-arbitration steps which they have not
complied with. The Supreme Court of Manila has followed this approach
in a recent case38.
However, it is argued that states which recognise the principle of
contractual freedom typically do not adopt legislation which affects
contractually agreed pre-arbitral phases of dispute resolution39. The issue
discussed in this article may well be relevant in all these states.
6. CONCLUSION
Despite the widespread opinion that adjudication of disputes under the

FIDIC Contracts is a mandatory precondition for the commencement
of arbitration proceedings, the analysis in this paper reveals that this
presumption is not beyond any doubt. Anecdotal evidence suggests that
alternative interpretation of the FIDIC Conditions has been employed in
some Central and Eastern European countries which allows either party
to by-pass the DAB phase of the dispute resolution process and refer
disputes directly to arbitration. Such an approach is based on the broad
and ambiguous wording of the exception under sub-clause 20.8 of the
FIDIC Contracts. And while I do not necessarily embrace this approach,
I should admit that it is not completely devoid of any substance and legal
reasoning. Therefore, future editions of the FIDIC Contracts should
settle this lack of clarity. By that time, it is up to the parties to address
the matter. If parties prefer to subject all their contractual disputes to
adjudication by a DAB, then it is recommended that an amendment of
sub-clause 20.8 is agreed and included in the Particular Conditions to the
FIDIC Contracts.
37
This is the case, for example, with Singapore (see Chapter 30B of the Building and Construction
Industry Security of Payment Act), New Zealand (New Zealand Construction Contracts Bill), Malaysia
(Construction Industry Payment and Adjudication Act 2012) and some jurisdictions in Australia.
38
Hutama-RSEA Joint Operations Inc v Citra Metro Manila Tollways Corp, GR No 180640, 24 April 2009,
cited by Hk, fn. 18 above, pp. 422423. The court held:
It is true that clause 20.4 of [FIDIC] states that a dispute between petitioner and respondent as
regards the contract shall be initially referred to the DAB for decision, and only when the parties
are dissatisfied with the decision of the DAB should arbitration commence. This does not mean,
however, that the CIAC is barred from assuming jurisdiction over the dispute if such clause was
not complied with.
39
Hk, fn. 18 above, p. 423.

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IS DISPUTE ADJUDICATION UNDER FIDIC

CONTRACTS FOR MAJOR WORKS INDEED

Despite the widespread opinion that dispute adjudication is a mandatory

The FIDIC Contracts for Major Works (FIDIC Contracts)1 introduce a

2. DISPUTE RESOLUTION UNDER FIDIC CONTRACTS

The FIDIC Contracts contain a detailed and self-contained system for

2.1. From a claim to a dispute

2.2. Review of the Dispute by a DAB

2.3. Amicable settlement

3. DISPUTE ADJUDICATION AS A PRECONDITION

The prevailing opinion among scholars and practitioners nowadays is that

3.1. Contractual interpretation

This provision, read in conjunction with sub-clause 20.2, suggests that

Enforcement of DABs decisions has been extensively discussed in the legal

3.2. Arbitral awards

engineer fulfilled the role of a dispute adjudicator instead. Nevertheless,

3.3. Purpose of DAB

4. THE EXCEPTION UNDER SUB-CLAUSE 20.8

4.1. Expiry of DABs Appointment

4.2. Other reasons for lack of DAB

Despite the widespread opinion that adjudication of disputes under the

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